Petrobras said offering $2 bn work to squeezed drillers

6/30/2014

Petrobras said offering $2 bn work to squeezed drillers

PETER MILLARD and RODRIGO ORIHUELA

RIO DE JANEIRO (Bloomberg) -- Petroleo Brasileiro SA, the biggest crude producer in ultra-deep waters, is offering more than $2 billion in drilling-service contracts, some under revised terms after suppliers complained about the original agreements, said two people with direct knowledge of the bidding process.

Petrobras is reissuing a drilling services contract after a reduction in the company’s rig fleet eroded suppliers’ margins, the people said, asking not to be identified because the process hasn’t been made public. The state-run producer is also offering wireline and well completion contracts, they said.

Halliburton Co., Baker Hughes Inc. and Schlumberger Ltd. probably will participate, one of the people said. Petrobras’ press department in Rio didn’t respond to requests for comment made by telephone and email. Halliburton, Baker Hughes and Schlumberger didn’t reply to emails and phone calls.

Shares of Halliburton extended gains to be up 0.8% to $71 at 2:03 p.m. in New York while Baker Hughes reversed losses and rose 0.4% to $74.26. Schlumberger was down 0.2% after falling as much as 0.7%. Petrobras dropped 0.4% to 17.13 reais in Sao Paulo.

Petrobras pumps 90% of Brazil’s oil and gas, giving it leverage over service companies in the country. Petrobras’ contracts often allow for revisions even after they are awarded. Halliburton CEO David Lesar said Jan. 21 that all service companies in Brazil were “seeking relief” and that deepwater drilling activity was below expectations.

Suppliers including Baker Hughes and Halliburton have cut staff in Brazil over the past year to adjust to lower-than-expected demand for services as Petrobras seeks to contain costs. The company trimmed its five-year business plan to $220.6 billion earlier this year.

Spending on new refineries has surpassed expectations and production has missed targets in recent years, curbing profits. Petrobras also subsidizes fuel imports, contributing to the largest cash-flow deficit and highest debt levels of any publicly traded oil producer.